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A new month just started, and with millions out of work, and many more dealing with the effects of the novel coronavirus, many are struggling just to put food on the table, let alone pay their rent or mortgage for this month.
New legislation that was passed last week has some good news for those with mortgages or rent they are struggling to pay. (and landlords too, keep reading).
The CARES Act is giving government-backed mortgages protections against mortgage foreclosure. This means that is you have the ability to elect Forbearance (pausing mortgage payments) for up to 180 days. And after that 180-day period, you may be able to elect another 180-days of Forbearance.
This applies to mortgages starting on March 27th, 2020, when the bill was passed.
But who qualifies, what are the costs, and what should you do if you DON’T qualify?
We’ll cover all of this (and more)!
Who Qualifies For Mortgage Relief?
The mortgage relief applies to loans that are “Federally-backed”, essentially, they are owned or insurance by the Federal Government.
But what types of mortgages qualify? Here’s the list:
- Fannie Mae or Freddie Mac owned mortgages
- VA Mortgages (owned by Department of Veteran Affairs)
- USDA Mortgages (owned by the US Dept. of Agriculture)
- FHA Mortgages (owned or back by the Federal Housing Administration)
- NRMLA Insured Mortgages (insured by the National Reverse Mortgage Lenders Association)
- Certain HUD-backed mortgages under Sec. 184 & Sec. 184a (Native American & Native Hawaiian Housing)
How Do I Know Who Owns My Mortgage?
Here are a few resources to see if you hold one of the above mortgages;
- Freddie Mac mortgages here
- Fannie Mae Mortgages here
- VA Mortgage information here (hint: If you used your VA loan benefit to buy your house, then you qualify)
- USDA Mortgage information here (hint: These are very specific loans only used for qualified properties)
- Find FHA mortgage information here (hint: There are usually for “first-time homebuyers” who put a small percentage down)
- NRMLA Mortgage information here (hint: these are usually reverse mortgages)
- HUD Sec. 184 & Sec. 184a mortgage info here
As always, contact your loan servicer directly for more loan information, and to see if you qualify.
Can I Stop Paying My Mortgage Payments?
This new bill allows borrowers to choose “Elective Forbearance.”, which means YES, you can stop making mortgage payments.
But here are the qualifications for this:
- You must contact your loan servicer directly and make the request
- You must be experiencing financial hardship due to the COVID-19 emergency
Yup, that’s it! There is no paperwork needed, and in fact, the bill itself says the lender must extend “up to 180 days” without any extra proof other than “the borrower’s attestation to a financial hardship caused by the COVID–19 emergency.”
If you have one of the federally-backed loans I listed above, and you request the 180-day forbearance, the loan servicer is obligated to honor this. They are also obligated to extend this if you need an additional 180 days AFTER the initial forbearance period has ended.
Furthermore, there are NO additional fees or penalties during the mortgage forbearance period. This means your loan provider CANNOT charge you anything extra to elect forbearance, they cannot charge any penalties for “late or non-payment”, and they cannot add any EXTRA interest charges other than what is already scheduled on your current mortgage contract.
This means the forbearance period is fee and penalty-free for as long as this lasts.
Do I Still Have To Pay Mortgage Interest?
Yes and no.
During Mortgage Forbearance, you don’t have to make any payments. BUT, the interest (and payments) that were schedule will still need to be paid back after the forbearance period is over.
You won’t be charged anything extra, and the interest will accrue as normal based on your payment schedule.
But the mortgage payments and interest will be paid back, the amounts are not FORGIVEN, simply delayed.
But Jake, when do I have to pay back all the missed payments?
What Happens When My Mortgage Forbearance Is Over?
After the initial forbearance period is over, if you are still experiencing “financial hardship due to the COVID-19 Emergency” you can elect up to another 180 days of Forbearance, as long as it’s within the “Covered Period.”
Jake, what the heck is the “covered period?”
In the bill, it defines the Covered Period as this:
- Starts when the bill passed (March 27th, 2020)
- Ends at the sooner of –
- The termination of the declaration of the national emergency, or
- December 31, 2020
So, you can extend your Forbearance again as long as we’re still in a state of national emergency, and it’s still this year.
What Do I Need To Do After Forbearance?
Once one or both of your forbearance periods are completely over, here’s where it may come back to bite you.
There is no specific guidance in the bill on HOW you will pay pack your missed payments, and many servicers are telling borrowers they will owe ALL the missed payments as soon as forbearance is over.
If you have a $2,000 mortgage, and take 6 months off due to financial hardship, there’s NO WAY you will have $8,000 lying around to make a balloon payment right at the end of forbearance.
This is why it is SO IMPORTANT to talk with your mortgage servicer directly, and ask them how they expect you to pay for the missed payments.
I would request that these get added to the END of the loan so that it simply extends your loan terms, and not as a “balloon payment”, which could cause MAJOR issues.
What About Foreclosures? Am I Protected?
If you own a vacant or abandon your property, you are NOT protected.
But if you own a federally-backed, occupied property, there is a “Foreclosure Moratorium”, which means your loan service may NOT initiate the foreclosure process or force a foreclosure-related eviction for at least 60-days, starting on March 18th, 2020.
This means you will NOT be foreclosed on until after May 17th.
Will Forbearance (or Missed Payments) Affect My Credit Score?
Not for a while. Forbearance does not directly affect your credit score, but can affect your future ability to get a mortgage loan.
But, the bill states that missed or partial payments will NOT be reported for 120 days, starting on January 31st, 2020, and ending 120 days after the bill passed.
This applied to ANY mortgage type, and means that missed or partial payments should NOT hurt your credit score until after July 25th, 2020 (120 days after bill passed).
Note: This Credit Reporting seems to cover ALL payment obligations, not just mortgages.
What If I Have A Multifamily Residential Property?
If you have a federally-backed loan on a multifamily residential property (a mouthful, I know…), and if you are current on your payments as of February 1st, 2020, then you may claim elective forbearance on that mortgage.
To request this, you need to provide “oral or written request” to your loan servicer.
Once the request is made, your servicer will document the hardship, and provide forbearance for up to 30 days.
After that 30 days is over, you may request another 30-day forbearance up to 2 additional times. These requests need to be made at least 15-days in advance of the original forbearance ending.
So, here’s what you could do:
- Call your servicer, state your case for financial hardship due to COVID-19
- After 14 days, call them back and request another 30-day extension
- 30 days after that, call again and ask for another 30 days
This could give you 90 days of total mortgage forbearance, assuming each time your request another 30 days, we are still in a national state of emergency, and it’s still before December 31st, 2020.
Oh…..and you can’t evict anyone while you are in forbearance….so don’t try.
What If You Don’t Qualify For Mortgage Relief?
If you do NOT have a federally-backed mortgage, many private lenders are stepping up and helping owners during this national emergency.
If you are experiencing financial hardship, simply call your mortgage servicer and ask what your options are.
Many are working with people on a case-by-case basis, and it is WAY more beneficial to have a conversation with them than to simply skip your payments and hope for the best.
Should I Stop Paying My Mortgage If I Can Afford It?
If you can make the payments, it is better to pay than to delay the payments (and interest) until later. There are multiple reasons for this:
- You will be extending your mortgage payoff, and depending on how your interest is calculated, this could end up costing your more
- If your lender requires a balloon payment at the end of forbearance, you have to pay it anyways, and now you risk going into default if you don’t have the money
- If you can afford the payment and are not experiencing financial hardship due to COVID-19, you don’t qualify for forbearance anyway
Not to mention the strain on your lender and everyone else who really needs help.
If you can pay, just pay.
What If I Can’t Pay My Rent?
In addition to mortgage relief, renters are also getting some help in the new CARES Act.
If the mortgage on your rental home is covered by any of the below, then your landlord cannot file for eviction or ask you to vacate your property for 120 days (starting on March 27th):
Landlords, Pay Attention Here
- Federally backed mortgage
- Federally backed multifamily mortgage
- Part of Covered Housing Program VAWA (Violence Against Women Act of 1994)
- Part of Rural Housing Voucher Program (under section 542 of the Housing Act of 1949)
Also, during this 120-day period, the landlord cannot “charge fees, penalties, or other charges to the tenant related to such nonpayment of rent”
So, until September 23rd, 2020, rental properties with qualifying loans CANNOT evict, or charge extra fees for non-payment to their renters.
But Jake, I’m a renter, how the heck would I know about the mortgage on this place?
Great question, and honestly the only way to find out is through your landlord.
Here’s what I recommend you do, as a renter, if you are experiencing financial hardship due to the COVID-19 Emergency:
- Call your landlord, or meet in person. Talk to them about your situation and let them know if you cannot make your payment.
- Work out a plan to pay what you can, when you can, and let them know about your desire to pay your rent. (remember, you are still obligated to pay rent per your rental agreement)
- Preferably, write out your plan on paper, and have both of you sign it so that you are both in agreement.
- If you feel the need, ask them if they are aware of the mortgage relief options, and send them to THIS POST to find out more.
- If they are unagreeable, then you may need to ask them who owns the loan on the property, and remind them that there is a federal eviction moratorium in place.
Remember, this works both ways, and just as much as you have an obligation to pay your rent, they have an obligation to pay the mortgage on the property. But if you both work together, you can come to the best resolution.
What About Non-Qualified Rentals….Will I Get Evicted?
Many states and counties are issuing a blanket eviction moratorium, effectively NOT allowing landlords to legally evict tenants.
To find out more about specific state and county emergency evictions notices, check out this comprehensive list here.
What If I Can Afford Rent, Should I Still Pay?
The eviction relief is NOT rent forgiveness, and you still are obligated to pay your rent. But it does protect you from being thrown out of your rental house if experiencing hardship right now.
Don’t simply skip your payment just because you won’t get kicked out on the street.
That’s a quick way to get booted later, and make it tough to find another place to rent.
Remember, most landlords are people, like you, and have families and obligations to take care of as well. Stay in communication, and honor your commitments (ahem….the rental agreement).
What Do I Do Once The Eviction Moratorium Is Over?
You will need to resume paying rent, and then follow a plan to pay off the back-owed rent during the moratorium.
If you are still unable to pay, an eviction notice can be served to you, but you will still NOT need to vacate for 30 days. Most states have a lot of protection for renters, so get familiar with Renter’s Rights over the next few weeks.
Renters: Contact Your Landlord. Landlords: Contact Your Renters
If you get anything from this rental relief section, it’s this:
COMMUNICATION IS KEY!
Without talking to each other, there is no way to come to an understanding about your situation, or to come up with a plan to get through this.
Please, Please, PLEASE talk to each other.
And Landlords……be human here. Use empathy, and if you can afford it, give financial grace right now.
Should I Refinance My Mortgage Right Now?
If you have a federally-backed mortgage and need financial relief, I would NOT refinance right now. You would lose your benefits, and be exempt from the forbearance options available in the CARES Act.
But if you don’t have one of those mortgages, it may be a good time to look at refinancing.
In general, if you can drop your rate by 0.5% or more, and will be in the house long enough to make back the refinancing fees, then yes, it’s a great move.
Mortgage expert Casey Fleming has a great loan calculator that lets you plug in your numbers to see if it’s worth it, and how quickly you can recoup your costs.
Right now, mortgage rates have plummeted, and you could save a significant amount by pursuing a low-cost refinance.
The best place to compare rates of online lenders is using Credible. They collect your info, and compare rates at the top online lenders (places like Quicken Loans, Caliber Home Loans, LoanDepot and more). Their application is a ‘soft’ pull on your credit, so it doesn’t impact your score at all.
They show you ALL the lender fees up front, and you stay on their platform right through closing.
Oh, and you can get a mortgage rate comparison within 3 minutes.
Check out the top mortgage rates at Credible.com